{"id":101049,"date":"2020-04-11T16:44:21","date_gmt":"2020-04-11T23:44:21","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=101049"},"modified":"2020-04-11T16:44:21","modified_gmt":"2020-04-11T23:44:21","slug":"whither-the-imf-when-currency-units-of-developing-countries-are-dramatically-depreciating","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2020\/04\/11\/whither-the-imf-when-currency-units-of-developing-countries-are-dramatically-depreciating\/","title":{"rendered":"WHITHER THE IMF WHEN CURRENCY UNITS OF DEVELOPING COUNTRIES ARE DRAMATICALLY DEPRECIATING"},"content":{"rendered":"

BY EDWARD THEOPHILUS<\/strong><\/em><\/span><\/h2>\n\n\n

It\nis regret to note that the coronavirus pandemic and associated unstable\neconomic environment created in the world has caused to dramatically depreciate\nofficial currency units of developing countries.  Sri Lanka\u2019s rupee value has depreciated to\nmore than Rupees 200 to a US dollar and other developing countries also gaining\nsimilar results whether the countries are like or not to the new environment. Despite\nthe prediction of certain currency speculators that the US Dollar would be\ncollapsed, it can be seen that currencies of developing countries have\ndepreciated to an unreasonable level. The prediction may be pessimistic and it\nis difficult to believe that the currency market would be in a negative\nenvironment in the medium-term for developed countries. The currency units of\ndeveloped countries don\u2019t record a similar type of depreciation recorded in\ndeveloping countries.  Developed\ncountries have the economic power to respond against uncertain conditions and\ndeveloping countries haven\u2019t got such power. In this environment, developing\ncountries expect from International Monetary Fund a workable solution to the\nproblem.  <\/p>\n\n\n\n

The\ndepreciating currency value negatively impacts developing countries as domestic\neconomies of developing countries are depending on imports and the current\ncurrency depreciation condition forced many countries to control imports and\nindirectly go to an exchange control regime. There may be a different point of\nview of international economists and many developed countries like Australia heavily\ndependent on remittances coming from the developing world.  Developed countries have foreign assets and foreign\nreserves as well as they have the power to borrow and settle the problem in mid\nto long term, but developing countries have not such power and they are in a\ngrave condition. Central Bank of Sri Lanka has introduced new regulations for\noutward remittances and new control measures would impact the investment\nprocess.<\/p>\n\n\n\n

International\nMonetary Fund is the fundamentally responsible organization to act in such a\nsituation and the World Bank has taken action to provide credit facilities to\nsome developing countries for medical expenses. The managing director of the\nInternational Monetary Fund, Ms. Kristalina Georgieva admitted that the\nworld\u2019s poor countries would suffer if the COVID-19 fallout drove markets to\nthe lowers level since  the1930s.\u201d It is\nan excellent statement of IMF boss and she also stated that emerging markets\nand lower-income nations across Africa, Latin America and much of Asia are most\nat risk.  Usually, IMF is more concerned with\ndeveloped market economies, but this time it concerns on lower-income nations.  <\/p>\n\n\n\n

The\ndepreciation of the currency value of developing countries has been a\ncontinuous process since before the corona pandemic and the International\nMonetary Fund needs to consider an effective and result oriented solution be\nproposed to the world rather than patches to settle the issue. Since the\ninception of the International Monetary Fund vital policy actions proposed to\ndeveloping countries and some of the suggestions were discordant to them as the\nproposal concerned with the political power of developing countries.<\/p>\n\n\n\n

The\noriginal condition of the Briton wood Agreement was to allow member countries\nto revalue or devalue currencies by 10% without permission of the fund. American\nproposal was to introduce a common currency called BANCOR, but it was not\nsuccessful. According to the IMF agreement, no country can officially revalue\nor devalue the currency unit in the way experienced under the Gold Standard\nSystem.  It was a problem for the world at\nthat time; however, the world is dynamic at present and the stability of\nexchange units has been changed since the inception of the IMF despite the\ndesired level by the proposed situation. Sri Lanka had the first experience of\nofficial devaluing with the permission of the IMF in 1967. The currency unit was\ndevalued by 20% in response to the official devaluation of Sterling pound by\n17.5% and later Sri Lanka introduced the Foreign Exchange Entitlement system\nwhich was an indirect devaluation of currency unit for import payments and\nrevaluing for non-traditional exports and the FECS system also removed in 1978\nintroducing adjustable peg system in which the currency unit has been radically\ndeclined during the 42 years. Now, the depreciation has come to a peak level\nand it seems that it is good for Sri Lanka and other developing countries\nmaking a parity for currency unit against the US dollar on the current basis at\nleast to maintain the agreed exchange rate for ten years.<\/p>\n\n\n\n

The\ndepreciation of currencies in lower-income nations negatively affects imports\nand debt repayment and the import of capital goods for economic development\npurposes would be expensive and returns from the investment would be lower than\nexpected. In this way, the lower-income nation will have difficulties to\nattract foreign investments and exchange control regimes in these countries hit\nto the free-market system.<\/p>\n\n\n\n

Industrialized\ncountries and high-income countries with trade power liked to a depreciating\nvalue of currencies in developing countries as it supports buying raw materials\nat a lower price and after the 1973 oil crisis developing countries were highly\ndisadvantaged by oil trade.  developed\ncountries did not listen to the plight of developing countries.  The popular advice of developed countries to\nmaintain an export economy in less-developed countries where supply output\n(industrial, commodities and other services) at a lower price to developed\ncountries. With the results of Coronavirus, the IMF has turned to Africa and\nexpressed concerns on debt repayment and increasing special drawing rights. It\nis a good moved, however, special drawing rights would not positively help to\nstabilize the exchange value of domestic currencies in developing countries. <\/p>\n\n\n\n

The\nyear 2000 the European Union took a successful decision to stabilize the\ncurrency introducing EURO as a common currency and could the IMF introduce common\ncurrencies for two major blocks in Asia, SARC and ASIAN countries and stabilize\nthe currency in these countries. Such an action might force countries to agree\nwith many conditions. Countries in the Asian continent must agree with such\nconditions as the preventing of currency depreciation would bring many happy\nreturns to each country. In this connection, the role of China and Japan will\nbe crucial and support to develop strong trade ties and foreign exchange\nreserved in all countries.<\/p>\n\n\n\n

How\npractically implement the idea may invite a broader debate.  It needs more research and an idealogical\ncontribution to the proposal from different countries and if it would\nsuccessful two new common currencies could be introduced to the international\nfinancial system before 2025.<\/p>\n\n\n\n

When\nthe EU created it associated with politics and military blocks, this proposal\npurely associates with currency stability and economic relations.<\/p>\n\n\n\n

The\ncurrent backward economic environment the SARC countries must work together and\nfinancial stability is vital for all members of the SARC. Since the first\ndecade of the 21st<\/sup> century, the cooperation SARC deteriorated on the\neconomic matter because these countries had problems in cooperation due to\npolitical reasons.<\/p>\n\n\n\n

The\noffice of the president in Sri Lanka needs to take policy initiatives to\nstabilize the currency.<\/p>\n","protected":false},"excerpt":{"rendered":"

BY EDWARD THEOPHILUS It is regret to note that the coronavirus pandemic and associated unstable economic environment created in the world has caused to dramatically depreciate official currency units of developing countries.  Sri Lanka\u2019s rupee value has depreciated to more than Rupees 200 to a US dollar and other developing countries also gaining similar results […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[124],"tags":[],"class_list":["post-101049","post","type-post","status-publish","format-standard","hentry","category-edward-theophilus"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/101049","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=101049"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/101049\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=101049"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=101049"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=101049"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}